Technical Dominoes Beginning to Fall

The continued optimism in markets has pushed several trades to technical inflection points. As risk trades rallied again Tuesday, AUD was the best performer and JPY lagged. The Asia-Pacific calendar is light but Obama addresses the US public.

The improvement in Syria is well-documented but roaring emerging markets may be an under-appreciated driver for risk trades. Indian and Indonesian shares rallied nearly 4% on Tuesday and the Shanghai Composite is in the midst of a three-day 5.7% surge.

Improvements in developing countries will eventually have a much larger effect on risk trades like AUD/USD, which closed at the highest since June 17.

EUR/CHF also closed at a two-month high, managing to touch a couple pips above 1.2400.

Another major technical level in focus is 1.5752 in cable. It's represents that June high and the 200-week moving average is also nearby. The pair touched 1.5744 on Tuesday.

Finally, NZD/JPY broke the July high, the 100-day moving average and the 61.8% retracement of the May-June fall.

The synchronicity of the technical moves suggests this could be the start of an extended period of risk appetite but we maintain some skepticism. September is historically a tough month for risk trades and the Fed will come back into focus later in the week, along with a multitude of risks over the coming month.

In the short term, positive sentiment may be overdone with stocks now on a 6-day winning streak and NZD/JPY higher for 7 straight days. In the hours ahead, the market will focus on Obama's speech to the public at 0100 GMT. Signs of war mongering would dampen sentiment.